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Intergovernmental Fiscal Transfers for Health

In many large federal or decentralized countries, the majority of public spending on health is executed by state and district governments (see graph below). Improving health in these countries—and globally—depends on improving the sufficiency, efficiency, and effectiveness of health spending at the subnational level. The Intergovernmental Fiscal Transfers for Health Working Group, a partnership of CGD and the Accountability Initiative in India, is tasked with identifying practices that improve health and increase the efficiency of subnational allocations.

Health status, access, and care vary greatly across subnational entities, and the decentralization of health systems and spending has mixed and complex results. To understand this complexity better, CGD and researchers at the Accountability Initiative (AI) in India have examined national-to-subnational fiscal transfers in India to identify practices that have global implications. The goal is to identify lessons for domestic reforms and implications for countries and donors facing similar challenges. We have also examined worldwide experience in allocating budgets according to health needs, leveraging greater subnational spending on health, and boosting subnational performance on health outcomes and delivery.

Key questions for the working group

What are better practices in intergovernmental fiscal transfers for health worldwide that can also help improve health outcomes in India?

How can the central government create incentives for increased allocation to health by states, given low levels of current spending?

What should be done to increase synergies in health expenditure by the central government and states?

What role can intergovernmental fiscal transfers play in supporting state and district level innovations to improve health outcomes?

What role for external funders in this space? What is the policy research and data agenda going forward?

Recent Work

In 2015, India's system of fiscal devolution underwent a radical transformation. This paper uses the experience of Brazil, China, and Mexico to draw important lessons on how India can use the opportunity of fiscal devolution to create a better system of health financing through better policy coordination between federal and local governments.

In the big decentralized countries where global disease burden is concentrated, such as India and Indonesia, most public money for health isn’t spent by the national ministry of health, the traditional counterpart for global health funders and technical agencies. Instead, most money is programmed and spent subnationally.

Greater subnational public spending reflects growing democratization, power-sharing, and local self-determination. It also responds to the conviction that local decision-makers understand local realities better than a bureaucrat sitting in the capital city. Yet evidence on the effectiveness of subnational spending on health care and outcomes is mixed at best, and incentives for greater spending and better performance can be weak.

India matters for global health. It accounts not only for about one-fifth of the global population, but also one-fifth of the global disease burden. Yet the Indian government spends only 1 percent of its GDP on public health—a paltry amount compared to what other large, federal countries like Brazil and China allocate (4.7 percent and 3.1 percent, respectively). This has a direct impact on Indian citizens who pay more out-of-pocket for health care than citizens in any other G20 country.

Most money and responsibility for health in large federal countries like India rests with subnational governments — states, provinces, districts, and municipalities. The policies and spending at the subnational level affect the pace, scale, and equity of health improvements in countries that account for much of the world’s disease burden: India, Indonesia, Nigeria, and Pakistan.

2015 has been the year we have been reminded that there have been major gains in development in many parts of the world, but that hundreds of millions of people still suffer the dangerous consequences of poverty, including high levels of maternal and infant mortality, hunger, illness caused by lack of basic sanitation, and death from easily treatable diseases. How can we improve health systems to make them more effective, as well as less wasteful and more accountable?

Health is a state rather than national subject in many countries (as we’ve discussed here and here), and in India this tendency has just become more pronounced. Based on the 14th Finance Commission’s recommendations (more here), money coming from the Central government to states will be less tied up and states more free to spend that money in whatever way they want.

India has fallen behind in both health expenditure and health outcomes compared to other lower-middle-income countries. Its burdens of tuberculosis and malaria, and increasingly noncommunicable diseases like diabetes, are one of the largest. Infant mortality and child malnutrition rates rival those in sub-Saharan Africa.